Politics

Facing health insurance premium hikes, Obama administration eyes price controls

Jonathan Strong Jonathan Strong, 27, is a reporter for the Daily Caller covering Congress. Previously, he was a reporter for Inside EPA where he wrote about environmental regulation in great detail, and before that a staffer for Rep. Dan Lungren (R-CA). Strong graduated from Wheaton College (IL) with a degree in political science in 2006. He is a huge fan of and season ticket holder to the Washington Capitals hockey team. Strong and his wife reside in Arlington.
Font Size:

In a shot across the bow to the insurance industry Tuesday, President Obama warned companies facing higher costs in part because of his health care law not to hike their prices, saying “we’ll be watching closely.”

Backing up his rhetoric behind the scenes, the Department of Health and Human Services (HHS) is quietly working on a new regulation to determine when insurance price increases are “unreasonable” and potentially prohibited by law.

The move may provide political cover heading into November’s elections as the President tries to keep the public from linking recent premium hikes to his newly-passed health care law.

But critics warn price controls could lead to either rationing or insurance companies going out of business, and point to Massachusetts’s experience with insurance price controls as a cautionary tale of what happens when pricing “turns political.”

Proponents, meanwhile, say without strict controls, the design of the health care law will lead to dramatic premium spikes. They also point to California regulations on automobile insurance as an example of where insurance price controls have been successful.

State regulators May 12 floated ideas to HHS about how to best institute the controls. The states said HHS should establish a set of criteria to flag price increases as “potentially unreasonable,” leaving HHS Secretary Kathleen Sebelius to make a final decision on whether a price hike is justified.

“The process should identify ‘potentially unreasonable’ increases, with further review . . . to determine any mitigating or exacerbating factors and decide whether the increase is actually unreasonable,” the National Association of Insurance Commissioners said.

The issue is complicated because under the health care law, HHS does not have the authority to simply deny premium hikes. A slew of states already have that power, and HHS has significant leverage over how states implement the reasonableness review in doling out $250 million in grants for its implementation.

The federal government has often used such funds to require states to implement additional provisions, and proponents of strict price controls are urging HHS to have states require “prior approval” of insurance rate hikes to accept the money.

“In the absence of a federal mandate for prior approval regulation,” activist group Consumer Watchdog said, “HHS should use section 2794’s grants to encourage states to adopt the most effective rate approval process available, prior approval rate regulation.”

The combination of federal and state authorities, in its own byzantine way, could eventually comprise price controls of insurance premiums, proponents hope and critics fear.

HHS spokeswoman Jessica Santillo said under the health care law “insurers will be required to publicly justify the kind of unreasonable rate increases that have made coverage unaffordable for so many American families.  Reviewing rate increases will go a long way toward ensuring that consumers finally get the value they deserve for their premium dollar and this new transparency in the health insurance market will encourage insurers to do more to control health care costs.”

In Massachusetts, Democratic Gov. Deval Patrick’s administration implemented strict price controls on insurance premiums under that state’s health care law,

Obama’s health care plan is in many ways based on the Massachusetts law, and Patrick shares with Obama a top political advisor in David Axelrod.

However, Massachusetts’s price controls did not work out as planned. E-mails later showed top state officials warning the controls would have adverse consequences, including undercutting the solvency of the state’s insurance companies.

In one case, deputy insurance commissioner Robert Dynan expressed his hope that insurance companies would win a lawsuit against the state over the issue and that the “problem will go away.”

Instead, Massachusetts was forced to put three insurance companies under oversight due to concerns about their financial health. “The prospect of these companies’ surviving is called into question under a rate cap scenario,” Dynan said.

Critics say the price controls can prohibit companies from incorporating new costs into their pricing structure, forcing rationing or operating at a loss.

Tevi Troy, who was deputy secretary of HHS during the Bush administration and is now a senior fellow at the Hudson Institute, said waiting times or other limitations for medical services could increase as insurers try to make up for higher costs without raising prices.

“Insurance companies are going to have to do something to stay in business,” Troy said.

Troy said provisions in the President’s health care law that will drive premium increases like preventing “recissions” – when insurance kick people off their health care plans for allegedly failing to disclose their preexisting medical conditions – may be worthwhile to stop the insurance industry’s “obnoxious” practices.

“But you can’t bury your head in the sand,” Troy said, to the impact those policies will have on the costs incurred by insurance companies.

On the other side of the issue, activist group Consumer Watchdog said insurance companies will hike premiums not to pay for increased costs, but to pad their profits under the design of the health care law.

The group cites a provision in the health care law that requires insurance companies to spend 80 or 85 percent of the premiums they collect on health care services, rather than administration costs or profit.

Under this provision, the group said, “In the same way that a Hollywood agent who gets a 20 percent cut of an actor’s salary has an incentive to seek the highest salary, insurers will have an incentive to increase health care costs and raise rates so that their 15 percent or 20 percent cut of premiums is a larger dollar amount.”

For this reason, the group argued, the administration must set strict price controls.

“The premium review and justification provisions of section 2794, along with encouragement of state-level premium regulation, are of critical importance for consumers because no other provision of the law has the potential to adequately restrain what insurers can charge for coverage,” the group said.

Besides whether it’s a good idea, the issue could carry significant political implications for November’s elections, experts said.

Troy said the President, in a speech Tuesday, appeared to recognize the danger of the public linking recent premium hikes to his health care law and in claiming to put insurers on notice, was laying the political groundwork for blaming them for the hikes.

Insurance companies, for their part, “recognize the political costs of rate hikes” for them, Troy said, especially since a key turning point in debate over the health care law was when WellPoint announced in February it was hiking premiums in at least 11 states. The announcement breathed new life into a health care bill thought dead in the wake of Republican Scott Brown winning the Massachusetts senate seat.

PREMIUM ARTICLE: Subscribe To Keep Reading

Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign Up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
BENEFITS READERS PASS PATRIOTS FOUNDERS
Daily and Breaking Newsletters
Daily Caller Shows
Ad Free Experience
Exclusive Articles
Custom Newsletters
Editor Daily Rundown
Behind The Scenes Coverage
Award Winning Documentaries
Patriot War Room
Patriot Live Chat
Exclusive Events
Gold Membership Card
Tucker Mug

What does Founders Club include?

Tucker Mug and Membership Card
Founders

Readers,

Instead of sucking up to the political and corporate powers that dominate America, The Daily Caller is fighting for you — our readers. We humbly ask you to consider joining us in this fight.

Now that millions of readers are rejecting the increasingly biased and even corrupt corporate media and joining us daily, there are powerful forces lined up to stop us: the old guard of the news media hopes to marginalize us; the big corporate ad agencies want to deprive us of revenue and put us out of business; senators threaten to have our reporters arrested for asking simple questions; the big tech platforms want to limit our ability to communicate with you; and the political party establishments feel threatened by our independence.

We don't complain -- we can't stand complainers -- but we do call it how we see it. We have a fight on our hands, and it's intense. We need your help to smash through the big tech, big media and big government blockade.

We're the insurgent outsiders for a reason: our deep-dive investigations hold the powerful to account. Our original videos undermine their narratives on a daily basis. Even our insistence on having fun infuriates them -- because we won’t bend the knee to political correctness.

One reason we stand apart is because we are not afraid to say we love America. We love her with every fiber of our being, and we think she's worth saving from today’s craziness.

Help us save her.

A second reason we stand out is the sheer number of honest responsible reporters we have helped train. We have trained so many solid reporters that they now hold prominent positions at publications across the political spectrum. Hear a rare reasonable voice at a place like CNN? There’s a good chance they were trained at Daily Caller. Same goes for the numerous Daily Caller alumni dominating the news coverage at outlets such as Fox News, Newsmax, Daily Wire and many others.

Simply put, America needs solid reporters fighting to tell the truth or we will never have honest elections or a fair system. We are working tirelessly to make that happen and we are making a difference.

Since 2010, The Daily Caller has grown immensely. We're in the halls of Congress. We're in the Oval Office. And we're in up to 20 million homes every single month. That's 20 million Americans like you who are impossible to ignore.

We can overcome the forces lined up against all of us. This is an important mission but we can’t do it unless you — the everyday Americans forgotten by the establishment — have our back.

Please consider becoming a Daily Caller Patriot today, and help us keep doing work that holds politicians, corporations and other leaders accountable. Help us thumb our noses at political correctness. Help us train a new generation of news reporters who will actually tell the truth. And help us remind Americans everywhere that there are millions of us who remain clear-eyed about our country's greatness.

In return for membership, Daily Caller Patriots will be able to read The Daily Caller without any of the ads that we have long used to support our mission. We know the ads drive you crazy. They drive us crazy too. But we need revenue to keep the fight going. If you join us, we will cut out the ads for you and put every Lincoln-headed cent we earn into amplifying our voice, training even more solid reporters, and giving you the ad-free experience and lightning fast website you deserve.

Patriots will also be eligible for Patriots Only content, newsletters, chats and live events with our reporters and editors. It's simple: welcome us into your lives, and we'll welcome you into ours.

We can save America together.

Become a Daily Caller Patriot today.

Signature

Neil Patel